by Broderick Perkins
It's prime time to invest in rental property, provided you understand such an investment isn't just about money you have to burn, but also the necessary landlord skills you'll need to really make the deal pencil.
Residential real estate investment sales were 24 percent of all home sales in 2012, down from 27 percent in 2011, but still the second highest share since 2005, according to the National Association of Realtors (NAR).
NAR also said investment home prices rose 15 percent to a median of $115,000 in 2012, up from $100,000 in 2011.
Along with still relatively affordable, but rising prices, a tad fewer investors in the market, and record low interest rates, the housing market offers novices and less experienced buyers a better shot at acquiring an investment property that can produce a decent return on their money.
That's provided you choose the right market and know what to do when you get there.
20 best rental investment markets
RealtyTrac recently named the "20 Best Markets to Buy Single Family Rentals," based on markets with the most potential cash flow and capitalization rates.
The study included hundreds of markets with a population of at least 200,000, restricting the list to markets where the average monthly gross rent of a three-bedroom home was at least 1 percent or more of the median sales price in that market.
RealtyTrac then sorted the list by the capitalization rate, highest to lowest and selected the top 20 on the list.
RealtyTrac's 20 Best Markets For Buying Single Family Rentals are:
Las Vegas, NV
Palm Bay, FL
Port St. Lucie, FL
Kansas City, MO-KS
"Buying single family homes as rentals that actually generate good monthly cash flow has become more difficult over the past year as institutional investors crowded into the market, snapping up tens of thousands of properties in 2012 alone,' said Daren Blomquist vice president at RealtyTrac.
"But there are still opportunities for the more conservative, individual investor to buy rental homes that generate a healthy return on investment," Blomquist.
That's provided the investor takes the time to learn what landlording entails, beyond having the purchasing cash to compete with the big boys.
Ada Vassilovski, vice president of online marketing for MyMove.com says there are five basic questions to ask before you become a landlord.
- Does the neighborhood allow rentals? A homeowners association that could restrict rentals governs even some single-family detached home communities.
- Do you really know the market? While RealtyTrac's report helps you zero in on metro areas with a potential for a good return on your money, sub markets could be a different story.
– Have your researched landlord-tenant laws? Again, RealtyTrac's study doesn’t consider rent control laws, lease contract regulations or fair housing issues. You'd better.
- Have you researched the hidden cost of carrying a rental property? Will the rent cover the mortgage, property taxes or upkeep? Do the math.
– Are you a handy person? How will you handle a water line break, clogged sink or two feet of snow in the driveway and sidewalks. Can you do it yourself or afford property management services?
Published: April 19, 2013